Challenges facing Mexico’s new president

Mexico's President Enrique Pena Nieto speaks during the signing of a pact at the Chapultepec castle in Mexico City December 2, 2012.

Mexico’s new president, Enrique Pena Nieto, took office on Saturday, promising a balanced budget, bold education reform, a more productive energy sector and vigorous security policies. How he manages this ambitious agenda during his six-year term will impact Mexico’s future and its partnership with the United States.

Mr. Pena Nieto takes the reins of government from Felipe Calderon, who managed one of the most difficult periods in Mexico’s contemporary history. During Mr. Calderon’s administration, the country suffered a serious polarization after his razor-thin victory over a leftist firebrand. Rampant narco-violence also prompted the government to implement a strategy to confront the impunity and carnage, which was threatening the country’s governance. The effects of the 2008 financial crisis also hit Mexico, smothering steady economic growth. As if these challenges were not enough, Mexico was the epicenter of the H1N1 virus pandemic, which killed thousands of people and halted economic activity in the country for several weeks in the spring of 2009.

Although Mr. Calderon is known mostly for his relentless offensive against drugs, his legacy may well be the way he managed this host of problems with boldness and skill and handed over a country with stronger institutions and a solid economy. Mexico’s annual gross domestic product is about $1.5 trillion, the government has reserves of nearly $200 billion, and the country attracts more than $19 billion annually in direct foreign investments. Mexico has outgrown its track record of staggering currency devaluations and financial instability.

Mr. Pena Nieto’s election in July was a triumph for the Institutional Revolutionary Party (PRI), which held a monopoly on power for seven decades until its defeat in 2000. Many say PRI governments of the past turned a blind eye to narco-criminality and sowed a culture of corruption in order to hold on to power. Perhaps the new president’s biggest challenge will be convincing his skeptics that he will keep Mexico on a responsible path.

The security question looms large among the challenges ahead, because Mexico is in the midst of a real war on drugs. While the vast majority of the 60,000 deaths attributed to this violence were gangsters engaged in bloody turf battles, millions of Mexicans have felt the brunt of the spreading violence. Many kingpins have been arrested or killed, yet a half-dozen powerful cartels continue to threaten the well-being of Mexican citizens. These murderous gangsters, who make billions of dollars servicing insatiable U.S. demand for illegal drugs, will move aggressively to test Mr. Pena Nieto’s resolve.

Corruption also remains a great concern. The power of organized crime and its ability to suborn authority — especially at the local level — continue to hamper efforts to fight drugs, build a more effective state and modernize the economy. According to Transparency International, Mexico is ranked No. 100 among countries in the world in perceived corruption.

An educational overhaul also is essential to cultivating a more modern and competitive Mexico. The country is ranked No. 77 in its level of education, according to the United Nation’s Report on Human Development.

Poverty also is a chronic problem. Although policies and programs have helped reduce extreme poverty by 23 percent in recent years, the overall poverty rate remains at 51 percent, according to World Bank data.

Mr. Pena Nieto is off to a positive start. He named a serious Cabinet that appears to be up to the aforementioned challenges. In his inaugural address, he pledged to continue to fight organized crime and to offer safety and prosperity to the Mexican people. He laid out 13 public-policy initiatives, including five that are key to making Mexico more competitive and stable:

1. Reform Mexico’s education system by “eliminating lifetime and hereditary positions for teachers.” Many of these positions were protected by the corrupt teachers union, and this has stunted Mexico’s education performance for decades.

2. Send Congress an austere budget with no fiscal deficit.

3. Issue a decree requiring austerity measures in public spending.

4. Promote a bill that prevents states from borrowing money to the point of default.

5. Create a crime-prevention program to include in the 2013 budget.

Mr. Pena Nieto also reiterated his commitment to seek a consensus to reform Mexico’s energy sector to allow private investment in an industry that was nationalized in 1936. Reforms that unlock enormous energy resources could make Mexico a global player.

Although it is too early to predict whether Mr. Pena Nieto can move these initiatives through a splintered Congress, he has outlined a bold and ambitious plan for shepherding Mexico toward greater prosperity and security.

Roger F. Noriega, former assistant secretary of state under President George W. Bush, is a visiting fellow at the American Enterprise Institute.